Federal Reserve Twists, but can it Turn the economy?

The Fed’s announcement to sell 400bn short term US debt from its portfolio and buy a similar amount of long term debt is unlikely to solve the current financial and economic problems. 

Consumer demand is not the problem (consumer debt is still historically high) in the sense that consumers lack the earnings power and spare debt capacity to launch a debt fuelled stimulus of the economy.  They are still deleveraging and will most likely continue to do so.

Admittedly, by focussing on the long end of the curve it will likely reduce longer term borrowing costs, but the main problem areas deal with commercial and industrial lending.

Commercial and industrial lending require stimulus from final demand to stimulate loan demand, capital investment and jobs growth.

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